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Vietnam Oil and Gas Report Q3 2008

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Report Summary

The latest Vietnam Oil & Gas Report from BMI forecasts that the country will account for just 1.44% of Asia Pacific regional oil demand by 2012, while providing 4.53% of supply. Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached an estimated 25.56mn b/d in 2007. It should rise to around 29.38mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 436bn cubic metres (bcm), with demand of 591bcm targeted for 2012, representing growth of 35.57% between 2007 and 2012. Production of an estimated 354bcm in 2007 should reach 455bcm in 2012, but implies net imports rising from an estimated 82bcm per annum to 136bcm.

Vietnam’s share of gas consumption in 2007 was an estimated 1.84%, while its share of production was 2.26%. By 2012, its share of gas consumption is forecast to be 4.23%, with the country accounting for 5.36% of supply. In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel (/bbl) – up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole are revised upwards from BMI’s last quarterly report. We are now assuming an OPEC basket price average of US$81/bbl for 2008, compared with the US$74/bbl estimate provided by our last quarterly report.

Based on recent price differentials, this implies Brent at US$84.71, WTI averaging US$85.63/bbl, and Urals at US$81.88/bbl. Vietnamese real GDP growth is now forecast by BMI at 7.0% for 2008, down from the estimated 2007 level of 8.5%. We are assuming 7.5% growth in 2009, 8.5% in 2010 and 2011 and 8.2% in 2012. Exploration success is on the rise in Vietnam, with a growing number of international oil companies (IOCs) partnering PetroVietnam in finding and developing hydrocarbon resources – particularly gas. We are assuming oil and gas liquids production of no more than 390,000b/d by 2011-2012, and the country is expected to pump 390,000b/d in 2008.

Consumption is forecast to increase by 6-10% per annum to 2012, implying demand of 422,000b/d by the end of the forecast period. Gas supply and demand is forecast to increase from the estimated 2007 figure of 8bcm to 25bcm by 2012. Between 2007 and 2018, we are forecasting a reduction in Vietnamese oil production of 5.7%, with crude volumes peaking at 400,000b/d in 2009/10, before slipping to 300,000b/d by 2018. Oil consumption between 2007 and 2018 is set to increase by 101%, with growth slowing to an assumed 6.0% per annum towards the end of the period and the country using 598,000 b/d by 2018. Gas production is expected to rise from around 8bcm in 2007 to 30bcm in 2018. With identical demand growth, we see no potential for imports or exports during the period.

Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and country-specific projections. Vietnam still ranks second in BMI’s updated Upstream Business Environment rating, reflecting a reasonable resource position, better-than-average growth outlook, attractive licensing terms and an IOCfriendly competitive environment. The country sits ahead of India and behind Australia. The country ranks equal 10th with the Philippines in BMI’s updated Downstream Business Environment rating, reflecting its lack of refining capacity, but above-average oil and gas demand growth outlook, plus a low level of retail site intensity. It is ahead of Malaysia, Hong Kong and Taiwan in the league table.

Table of Contents

Executive Summary 7

SWOT Analysis .9

Vietnam Political SWOT .. 9

Vietnam Economics SWOT 9

Vietnam Business Environment SWOT ...... 10

Vietnam Energy Market Overview 11

Global Oil Market Overview 13

Table: Global Oil Consumption (000b/d) . 14

Table: Global Oil Production (000b/d) ..... 15

Oil Price Outlook ...16

Waiting For A Correction ... 16

Table: Crude Price Assumptions 2007/08 . 17

Revised Forecasts ...... 17

Table: Oil Price Forecasts ...... 18

Regional Energy Market Overview 19

Oil Supply And Demand ...... 19

Table: Asia Pacific Oil Consumption (000b/d) .. 20

Table: Asia Pacific Oil Production (000b/d) ..... 21

Oil: Downstream 22

Table: Asia Pacific Oil Refining Capacity (000b/d) .... 22

Gas Supply And Demand .... 23

Table: Asia Pacific Gas Consumption (bcm) ..... 23

Table: Asia Pacific Gas Production (bcm) . 24

Liquefied Natural Gas 25

Table: Asia Pacific LNG Exports/(Imports) (bcm) ...... 25

Business Environment Ranking 26

Asia Pacific Region 26

Composite Scores .. 26

Upstream Scores ... 27

Table: Regional Upstream Business Environment Rating.... 27

Downstream Scores 28

Table: Regional Downstream Business Environment Ratin 28

Vietnam Upstream Rating – Overview ...... 29

Vietnam Upstream Rating – Potential Returns .. 29

Vietnam Upstream Rating – Risks To Potential Returns ...... 29

Vietnam Downstream Rating – Overview . 29

Vietnam Downstream Rating – Potential Returns 30

Vietnam Downstream Rating – Risks To Potential Returns . 30

Business Environment ..31

Legal Framework 31

Infrastructure.. 33

Labour Force.. 33

Foreign Investment Policy ...... 35

Tax Regime 37

Industry Forecast Scenario 38

Oil And Gas Reserves 38

Oil Supply And Demand ...... 38
Gas Supply And Demand .... 40
Refining/Oil Products Trade . 41
Revenues/Import Costs . 42
Table: Vietnam Oil & Gas – Historical Data & Forecasts .. 43
Other Energy .. 44
Table: Vietnam Other Energy – Historical Data & Forecasts ... 45
Key Risks To Forecast Scenario ... 45
Macroeconomic Outlook .46
Table: Vietnam Economic Activity ... 48
Regional Case Study ......49
Gazprom In The Asia Pacific Region . 49
Competitive Landscape .52
Executive Summary 52
Table: Key Players – Vietnam Oil & Gas Sector . 53
Overview/State Role ... 53
Table: Key Upstream Players . 54
Table: Key Downstream Players ..... 54
Company Monitor ..55
PetroVietnam.. 55
BP Vietnam. 59
Petronas Vietnam 61
Zarubezhneft ... 64
ConocoPhillips – Summary ..... 67
Mitsubishi – Summary ... 67
KNOC – Summary 67
Chevron – Summary 68
Premier Oil – Summary . 68
Soco International – Summary 69
Glossary Of Terms 71
Oil & Gas Ratings: Revised Methodology 72
Introduction 72
Ratings Overview 72
Table: BMI Oil & Gas Business Environment Ratings: Structure 73
Indicators . 74
Table: BMI Oil & Gas Business Environment Upstream Ratings: Methodology 74
Table: BMI Oil & Gas Business Environment Downstream Ratings: Methodology .. 75
Oil & Gas Outlook: Long-term Forecasts .77
Global Oil Demand 77
Table: Global Oil Demand (000b/d) 77
Table: Global Oil Production (000b/d) ..... 78
Global Oil Supply ...... 78
Global Gas Demand .. 79
Table: Global Gas Demand (bcm) ... 79
Global Gas Supply ..... 79
Table: Global Gas Production (bcm) . 80
Regional Oil Demand 80
Table: Asia Pacific Oil Consumption (000b/d) .. 81
Regional Oil Supply ... 81
Table: Asia Pacific Oil Production (000b/d) ..... 82
Regional Refining Capacity 82 Table: Asia Pacific Oil Refining Capacity (000b/d) .... 83 Regional Gas Demand . 83 Table: Asia Pacific Gas Consumption (bcm) ..... 84 Regional Gas Supply .. 84 Table: Asia Pacific Gas Production (bcm) . 85 Vietnam Country Overview . 85 BMI Forecast Modelling .86 How We Generate Our Industry Forecasts .... 86 Energy Industry 87 Cross Checks .. 87 Sources .... 87